Most advisors and their wealthy clients spent the last two years scurrying to set up their estates to take advantage of the $5 million exclusion—an exclusion they thought would be drastically reduced come December 31, 2012.
Instead, the exclusion is now permanent and the angst was all for nothing. But perhaps investors will make better estate planning decisions as a result.
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Congress essentially extended existing estate and gift tax rules for the long term if not permanently. Not only was the $5 million exclusion extended, its portability between spouses was also extended.
Any combination of estate asset transfers and gifts made below the exclusion amount will not be taxed.
The estate tax rate was increased from 35% to 40% but it remains at one of the lowest levels of the past 10 years.
Some clients may wish they had not rushed to set up trusts and may now wish to undo them.
Others may not be so keen to set up a trust since estates of $5 million to $10 million can transfer assets to their heirs on a stepped-up cost basis after death.
Of course, there are many reasons to set up a trust other than to transfer assets. Trusts can be an asset management tool as well as an asset transfer tool.
They also can serve as a supplementary asset protection tool from creditors, ex-spouses, or others whom the family wishes to prevent having access to certain assets.
The fiscal cliff deal may have alleviated some of the urgency and also the fear that the government might make new, lower exclusion thresholds retroactive.
Now you can focus on the real needs of your clients long-term
in a way that promotes multi-generational wealth success instead of rushing to make decisions based on tax fears.